Report No. CB-2 CABLE SERVICES ACTION June 1, 1994 FCC ISSUES FIRST PROGRAM ACCESS ORDERS UNDER CABLE ACT The FCC issued today its first two orders under the program access provisions of the 1992 Cable Act. An important component of the Act was to promote the development of competition in the distribution of multichannel video programming. In particular, the program access provisions contained in Sections 12 and 19 of the 1992 Cable Act are the focal point of Congress' emphasis on the importance of fostering the development of facilities-based competition to cable operators. In today's decision in CSR-4231-P, the FCC denied the petition of Time Warner Cable, a cable operator, for exclusivity for Courtroom Television (Court TV), thus ensuring the availability of this programming to competitors of Time Warner, including Liberty Cable Company, an SMATV competitor to Time Warner's cable systems in Manhattan, as well as to other competing distributors in both local and national distribution markets. Time Warner Cable through its parent companies, Time Warner Entertainment and Time Warner, Inc., along with other cable operators, is the principal owner of Court TV, making Court TV a vertically integrated programming vendor subject to the program access provisions of the 1992 Cable Act. In the New England Cable News ("NECN") proceeding, CSR-4190- P, the Commission promotes the development of competition and diversity in the programming marketplace by allowing NECN to use appropriately tailored exclusivity as an incentive for investment in and carriage of a new regional news programming service, finding that exclusivity may be vital to the financial survival of NECN. NECN will be allowed to enter into exclusive distribution agreements with cable system affiliates during the next eighteen months, so long as all such exclusive rights terminate seven years from date of this order. The 1992 Cable Act provides that, for a period of ten years, exclusive contracts for satellite cable programming between vertically integrated programming vendors and cable operators, in areas served by the cable operator, are prohibited unless the Commission determines that such exclusivity is in the public (over) -2- interest. These restrictions on exclusive contracts are intended to foster the development of emerging competitors to cable, allowing a transition to full competition in the distribution market for programming. In making such a public interest determination under the Act, the Commission considers five factors: (a) the effect of such exclusive contract on the development of competition in local and national multichannel video programming distribution markets; (b) the effect of such exclusive contract on competition from multichannel video programming distribution technologies other than cable; (c) the effect of such exclusive contract on the attraction of capital investment in the production and distribution of new satellite cable programming; (d) the effect of such exclusive contract on diversity of programming in the multichannel video programming distribution market; and (e) the duration of the exclusive contract. Given Congress' express desire to foster the development of competition in the market for distribution of video programming, any party seeking a determination that such an agreement meets the statutory public interest standard bears the burden of demonstrating that the proposed exclusivity provides sufficient public interest benefits to outweigh the presumptively anticompetitive effect on competing distributors. Thus, the Commission will examine whether the proponent of exclusivity has met its burden of demonstrating that the statutory presumption that the public interest is served by requiring open access by emerging competing distributors to the programming at issue is offset by countervailing public benefits derived from allowing exclusive agreements in order to create incentives for investment in the development and distribution of services that will promote diversity in the programming market. The Commission concluded that Time Warner had failed to demonstrate that continued enforcement of its exclusive contract with Court TV was in the public interest. The Commission found that enforcement of the proposed exclusivity had a limiting effect on the ability of Liberty Cable, an emerging competitor to Time Warner, to create effective competition in the Manhattan multichannel video programming distribution market. The Commission determined that the proposed exclusive agreement withholds a popular service from emerging competitors to cable, thereby directly constraining the development of competition in the Manhattan distribution market. The Commission found that the proposed exclusivity was likely to similarly inhibit competition in other local distribution markets and in the national distribution market. The proposed exclusivity would also have a limiting effect on the development of multichannel video programming distributors (MVPDs) competitors using alternate technologies other than cable. -3- The Commission further found that no countervailing public benefits would be derived from allowing continued enforcement of the exclusivity rights. The Commission noted that the facts demonstrate that Court TV is a viable, successful programming service with broad, national appeal. Exclusivity is not necessary for the survival of the service. In addition, exclusivity in this case would not promote diversity in programming. Therefore, the Commission concluded that continued enforcement of Time Warner's exclusive contract with Court TV was not in the public interest. The Commission determined that NECN had established that it is in the public interest to allow NECN to enter into appropriately tailored exclusive distribution agreements with cable affiliates. NECN demonstrated that the ability to offer exclusivity to cable affiliates is necessary to attract investment and secure distribution essential to the financial viability of its regional news programming service. In addition, NECN demonstrated that its ability to offer exclusive distribution rights to cable affiliates will foster diversity in the programming market. The Commission further determined that NECN had shown that the public interest benefits that reasonably tailored exclusivity can provide offset the effect that such exclusivity may have on the development of facilities-based competition in the New England distribution market(s). The Commission noted that the Time Warner situation differed from that of New England Cable News. With respect to the public interest benefits of exclusivity, in the New England case, the Commission concluded that exclusivity might be critical to that service's survival. In contrast, Time Warner failed to show that the proposed exclusivity is necessary for Court TV's viability. In addition the exclusivity agreement at issue in New England is seven years in duration, while the Court TV agreement may run for 15 years. Accordingly, the Commission concluded, while New England had carried its burden of persuading it that its exclusivity agreement promotes the public interest, Time Warner had not. Actions by the Commission June 1, 1994, by MO&O, Time Warner Cable (FCC 94-132) and MO&O, New England Cable News (FCC 94-133). Chairman Hundt, Commissioners Quello and Barrett with Commissioners Ness and Chong not participating. - FCC - News Media contact: Audrey Spivack at (202) 418-0500. Cable Services Bureau contact: James W. Olson or Diane L. Hofbauer at (202) 416-0856.